companies are becoming quite sophisticated in how they collect information by using emails, text messages, chat windows, Facebook, Twitter, message boards and their own proprietary social networking sites. Even if the mode of communication is computer-generated messages, all of these methods involve individualized contact with stu- dents, and it is student contact that turns what otherwise might be considered a marketing activity into recruitment activity—that is, a covered activity—in the Department’s view. It is not just the high-pressure sales lead generation
company whose contracts need to be evaluated. College matching and college social networking sites like Zinch and
Collegeboard.com, which more and more nonprofit and public schools are using, are designed to facilitate interaction with individual students, so payments to such companies are very likely subject to the incentive com- pensation ban. The proprietary sector in recent years has seen an increasing number of lead generation firms that claim to be (and that may very well be) more professional and ethical than their competition. Ironically, because these firms tend to use various means of contacting prospective students to qualify them, payments to these companies are also subject to the incentive compensation ban. Oversimplifying a little bit (and only a little bit), the only recruitment-related vendors whose contracts are not impacted by the incentive compensation ban are those like the classic ad agency that does not interact with stu- dents.
STEP 2: HOW DOES THE VENDOR GET PAID? The nature of the vendor’s services is only a gateway issue. The difficulty comes with examining the vendor’s com- pensation arrangement. It is an incentive compensation ban, so as a general rule, a fixed monthly or quarterly or one-time flat fee is perfectly acceptable. Just about any other structure, though, will require a fair degree of analysis and careful thought. Here are some guidelines to assist in that analysis: Cost-per-action (CPA) and cost-per-lead (CPL) cam-
paigns are probably not allowed. We say, “probably,” and hedge just a bit because the Department’s guidance is less than crystal clear. So-called “click-through payments” are permissible as long as they are “not based directly or indi- rectly on success in securing enrollments,” says the Depart- ment. However, if the student is merely clicking through a web form, there is no interaction with the student. So this kind of conduct is not subject to the incentive com- pensation rules in the first place because it is not a recruit- ment activity. In the same vein, not every CPA or CPL arrangement violates the incentive compensation ban.
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Recall the first step. CPA and CPL are perfectly legitimate if there is no contact with students. There is a limited exception for bundled service
providers. If a school’s social media contractor is also pro- viding online classrooms for enrolled students, then the school may be able to pay the vendor a percentage of tuition. Make sure it is a bona fide bundling of non-recruit- ment services. In our experience, the Department has not hesitated to argue that something is an alleged sham trans- action. Also, if an institution wants to avail itself of this exception, it must pay particular attention to the compen- sation of the vendor’s employees, discussed below. The employees of the vendor cannot be given incentive
compensation. In other words, if a school is prohibited from compensating its recruitment personnel in a partic- ular way (e.g., commissions or volume-based bonuses), then the vendor cannot compensate its personnel that way. Schools cannot pay a third party to do what the school is not permitted to do itself. This means the incen- tive compensation rules apply to a vendor’s employees, though it remains to be seen how the Department will enforce this extension of the rule.
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